Juanita Is a Sole Proprietor Who Has Some Outstanding Receivables

question 24

Multiple Choice

Juanita is a sole proprietor who has some outstanding receivables she wishes to sell.The receivables have a $16,000 FMV and a basis of $10,000.Juanita sells the receivables for $12,500.What gain or loss does Juanita recognize on the sale?

• A)$3,500 capital loss.
• B)$3,500 ordinary loss.
• C)$2,500 capital gain.
• D)$2,500 ordinary gain.

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Definitions:

Escalation Lease

A lease agreement that includes provisions for rent increases over the lease term.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

A Lease

A contractual agreement where one party (the lessor) allows another party (the lessee) to use an asset in exchange for payment over a specified period.

Gross Lease

A lease in which the monthly payment made by the tenant remains the same and the landlord pays the operating expenses of the building.